Are You Ready for a New Economic Paradigm?

The gross national product includes air pollution and advertising for cigarettes, and ambulances to clear our highways of carnage. It counts special locks for our doors, and jails for thepeople who break them. The gross national product includes the destruction of the redwoods and the death of Lake Superior. It grows with the production of napalm and missiles and nuclear warheads.

“And if the gross national product includes all this, there is much that it does not comprehend. It does not allow for the health of our families, the quality of their education or the joy of their play. It is indifferent to the decency of our factories and the safety of our streets alike. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials …

The gross national product measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to country. It measures everything, in short, except that which makes life worthwhile, and it can tell us everything about America – except whether we are proud to be Americans.

The small kingdom of Bhutan has put in place probably the best living model so far of what a new economic paradigm could look like. Bhutan has rejected GDP as a measurement of economic progress, and they recently organized a United Nations sponsored meeting to discuss alternative economic progress indicators. The event was called “High Level Meeting on Well-being and

Happiness: Defining a New Economic Paradigm.”. According to Eric Zencey, blogging for the Daly News, “the larger purpose of the meeting was to articulate the elements of a new economic paradigm, and to issue a call to world leaders to adopt its fundamental precepts.”

The linking of development policy, pursuit of wellbeing, and alternative indicators in a new economic paradigm isa strong step toward establishing a sane and sustainable civilization that focuses on meeting human needs with ecological efficiency. To get there, centuries of infinite-planet economic thinking have to be swept aside.

…The traditional model of economic development presumes that raising GDP (gross domestic product) is the central purpose of economic policy. Increasingly, world leaders are recognizing that GDP is a poor measure of economic wellbeing, which is itself just part of overall wellbeing. Thus, the High Level Meeting to explore, articulate, and adopt an alternative. Bhutan’s leadership of this movement traces back to its adoption of gross national happiness as a way of measuring economic and social progress.

The fact that economists were at the podium questioning the equivalence of happiness and GDP is a hopeful sign, a sign of a deep crack in the foundation of the economics discipline. But it is one thing to say there is more to happiness than economic growth; it is quite another to propose that economic growth is inimical to generalized happiness. None of the speakers advocated an end to growth – that would be called, in the present vocabulary, economic stagnation or recession. Instead, they invoked, again and again, “sustainable development,” a phrase I must have heard 30 times. The main message seemed to be, “Of course we will continue to have economic growth and sustainable development, but alongside it we should adopt policies that foster the well-being that GDP doesn’t measure.”

One of Eisenstein’s big concerns is the issue of debt:

…while there were a few nods to the ecological limits of growth, there was no mention of addressing Third World debt, consumer debt, or the financial system that depends on it. This was the coal pile in the ballroom – obvious but unmentionable, for acknowledging it would mean, inescapably, a radical transformation of our entire society. The circles represented at this “high level” conference have not reached the point yet of countenancing anything as radical as ending the debt system. But they will soon. As ecosystems and cultures unravel, the party isn’t as much fun anymore even for those at the top.

Ultimately, Eisenstein brings the discussion back to one of his constant themes: the crisis of disconnection:

It is not just the money system that is at stake here. Underlying our debt-based system is a certain view of human nature, human identity, and our relationship to nature that is, like the money system, in crisis. A system that engenders competition makes sense in a world of discrete, separate selves, striving first and foremost to survive and reproduce in a world of Other. But that sense-of-self is becoming obsolete; many of the religious speakers talked of the interconnected nature of being, of interbeingness, of the larger We. Even the economists acknowledged the importance of connections and community for happiness. But when we have a money system that fosters endemic disconnection, any efforts to promote happiness will be fighting an uphill battle. We saw what happened when the sincere intentions of Rio ran up against financial reality, and its hopefully promises came to naught. Let’s not repeat that mistake. It is time to confront the fact that our spiritual values, which are evolving toward oneness or interconnection, are at odds with our institutions, which embody separation. Our economic institutions are chief among them, and cannot be excluded from the happiness conversation.

One of my very favorite systems thinkers was Howard T. Odum. I am quite excited about a new blog, A Prosperous Way Down (Our civilization can thrive in a future where we live with less) , dedicated to his work, and edited by his daughter, Mary Logan. You’ll probably see numerous links showing up from here to there, but today I want to pull a couple of quotes from an article titled “Whatever Happened to Hierarchies in Ecology.” The post has bigger themes I want to come back to eventually, but there are a couple of points relating to the new economic paradigm that I found fascinating. First, Logan brings forth a relevant quote from 1926 by a Nobel prize winning scientist/economist who actually understood the energy basis for societies:

We thus arrive at the conclusion that any sort of perpetual motion is impossible. A continuous stream of fresh energy is necessary for the continuous working of any working system, whether animate or inanimate. Life is cyclic as regards the material substances consumed, and the same materials are used over and over again in metabolism. But as regards energy, it is unidirectional, and no continuous cyclic use of energy is even conceivable. If we have available energy, we may maintain life and produce every material requisite necessary. That is why the flow of energy should be the primary concern of economics.

The recent trans-disciplinary field of Ecological Economics proposes to combine the two sciences using economic methodology while merging conceptual theory. Ecological economists propose that we “internalize the externalities” of Nature into human economic systems. Yet this does not go far enough, if one is to value resources properly as the basis for our survival. In one of their last papers, Odum and Odum (1999) proposed that, in order to understand sustainability issues, we should reverse the idea and “externalize the internalities” by placing the contributions of the economy on the same measurement basis as the work of the environment. This reversal requires a different type of measure than money, since Nature’s processes (from which we are all derived) do not use currencies. So neither Economics nor Ecology nor Ecological Economics sciences as they currently exist can capture the relationships and levels of hierarchy in the unified system of Man and Nature. The new science of Emergy Synthesis proposes to quantitatively measure the complexity in those relationships.

It is beyond the scope of today’s post to adequately explain “Emergy Synthesis,” but did you catch Odum’s idea to “externalize the internalities”!? Standard economic theory refers to an “externality” as a cost or benefit that occurs as the result of a transaction, but affecting a third party that is not part of the original transaction. For example, environmental damage that occurs as a result of a company doing business, is referred to as an externality. Ecological Economics advocates argue that companies should be required to internalize these externalities – that there are ways to calculate environmental “costs” and that these costs should be absorbed by those responsible for them. So the Odum brothers (Howard and Eugene) argued for taking it one step further – to “externalize the internalities” by creating a common energy valuation system that would place “the contributions of the economy on the same measurement basis as the work of the environment.

As I see it (Figure 3), the physicaldimension of the economy, which can be measured in terms of the scale of material, energy, chemical, and biological throughput, does indeed comprise an economic sub-system of the world’s physical biosphere, which includes the sources and sinks for the economic throughput. This is the partial truth in the ecological vision of the economy and it affirms the existence of certain physical limits to the scale of economic growth–but, strictly speaking, these limits only apply to physical economic growth.

In my view, the economy also has a non-physical, or mental dimension—e.g., the value we place on psychological development or intellectual learning—that contributes to the overall depth of economic growth. The mental economy is inextricably linked to, and entirely dependent upon, the physical economy, which is, in turn, governed by the natural logic and limits of the Earth’s physical systems. However, the mental economy is not a sub-system of the Earth’s physical biosphere and it is not governed directly by the rules of the natural world. The mental economy, for better and for worse, is where we make all our economic decisions and direct the economic growth in two-dimensions—mental depth and physical scale. But this mental economy is a sub-system/culture within a more encompassing mental super-system/culture that we might define as the non-physical, depth dimension of human civilization. Following the philosopher Ken Wilber and before him Teilhard de Chardin, we may call this the noosphere in relation to the biosphere.

You’ll have to read O’Connor’s paper to really understand his unique take on all of this…and then come back to the work of Howard Odum, and see more clearly how even our mental structures are ” inextricably linked to, and entirely dependent upon, the physical economy, which is, in turn, governed by the natural logic and limits of the Earth’s physical systems.” Kurt Cobb covers this in The Unbearable Lightness of Information.

I wonder how difficult it would be to do some attempt at an analysis of Bellingham/Whatcom County's economy in the light of some of these ideas. I am aware of an "economics of happiness" questionnaire. Do you know how good a tool that is, are there others?

I like that formulation. I'm going to try to remember that. Then there's the distinction between data collection via the microscope (the details), and what Odum called the "Macroscope" (the big picture).

Thanks Walter. Doing manual labor does help ground one in physical realities. I would be happy if economists would just begin to recognize the underlying basis of energy, which Frederick Soddy recognized back in 1926. "The flow of energy should be the primary concern of economics."